IT'S DRIZZLING at Cardiff International Airport as my aircraft lands after an hour and ten minute flight from Edinburgh.

The airport itself is much smaller than I expected but then it is in competition with Birmingham International and Bristol which are just a couple of hours away from the country's capital and Heathrow is not that much further if you keep following the M4 which sweeps along the country's south coast and across the Severn to England.

In fact, passenger numbers increased by five per cent to a record 2.1 million last year. In Scotland, Edinburgh airport also enjoyed a five per cent increase but its total was nine million while Glasgow saw 8.72 million passengers going through.

I collect my hire car from a rather temporary looking building a few hundred yards from the terminal and begin the 30 minute journey into Cardiff.

After driving through typical suburbs on the edge of the city everything is suddenly transformed as you follow the signs for Cardiff Bay and reach a dual carriageway crossing a causeway to the new Wales.

Striking modern buildings compete for your eyes' attention including the stunning Millennium Centre - whose walls are lined with slate and house the Welsh Opera - and the five star St David's hotel, which looks like a huge cruise ship.

The Welsh equivalent of Holyrood, Richard Rogers' Senedd - another extraordinary feat of architecture - is also here and has attracted a fair bit of controversy itself.

It is dominated by a huge wooden overhang and the parliament itself sits in an underground chamber which you can see through slots in the meeting area above.

This flagship area is one of the most successful examples of regeneration in the UK and has helped to dramatically change the image of this country of 2.9 million people.

Like Scotland, Wales has undergone a complete metamorphosis with the virtual disappearance of former dominant industries like mining and steelmaking and increasing reliance on service industries like financial services.

The country's only FTSE-listed company is Admiral Insurance which has grown hugely since being brought from London to Cardiff by American businessman Henry Engelhardt 15 years ago, thanks to a £1m grant from the then Welsh Development Agency.

Today it is one of the biggest employers in Wales with 900 people in Cardiff and another 900 in nearby Swansea.

CBI Wales Director David Rosser says the country's economy has developed and diversified from where it was ten or 20 years ago.

"I think Cardiff and the M4 corridor are doing quite well," he says.

"Company sentiment is as positive as you would find it in the business community generally in the UK.

"I think the challenge is when you look at the economic statistics for Wales. They are still pretty disappointing.

"We are probably propping up the UK regions league table in terms of economic activity. The challenge is taking the success you are seeing in Cardiff and Deeside and moving that out into other parts of the Welsh economy.

"It is still a huge disappointment that 25 miles from Cardiff you have got some of the poorest communities in the UK with worse levels of economic activity. They don't seem to be dragged along by the economics down here on the main corridor.

"That is a real challenge for the Welsh Assembly Government (WAG). It is not a simple issue to deal with. There are very entrenched problems there."

Overall the Welsh economy is lagging behind the rest of the UK with gross value added (GVA) per head of population in 2006 at 77.3, while the UK average is 100.

CBI Wales assistant director Leighton Jenkins says the GVA figure was a bit of a surprise considering the amount of public investment in key areas.

"Around £2bn has been invested in south west Wales and the valleys areas. European Union-funded programmes such as Objective 1 were supposed to have pushed GVA up," he says. "It does not appear to have happened as well as they had hoped."

One of the most radical moves by the Assembly was to abolish the Welsh Development Agency (WDA) - equivalent to Scottish Enterprise - and absorb it into the civil service.

Rosser is not impressed by the results of that move to date.

"We felt it was a backward step at the time and I don't think we have seen anything to change our views on that," says Rosser.

"Inward investment has slowed but I think that is as much the changing nature of global inward investment and whether the Welsh product is a good match for it.

"The minister for the economy and transport has an advisory group but it is not involved in decisions so it is entirely run now by politicians and civil servants.

"On the business support side we have heard a lot of talk about streamlining and simplifying the portfolio of business support products.

We are waiting to see a lot of that coming into action frankly.

Time is now moving on and business support still looks and feels the same as it was.

"On the wider economic development side there is some concern that the energy and initiative has dimmed somewhat in terms of bringing new schemes on.

"The land bank the assembly holds doesn't seem to have worked as much as when the WDA was in charge of it."

Nevertheless he says that business has a constructive relationship with the WAG.

"There is an awful lot of dialogue and conversation between the two," he says.

"It is how we move the relationship from the economic development agenda and get the business view heard across other portfolios such as environment and public services.

"We had a hugely positive discussion with the economic development minister, who is massively keen to spend his budget on businesses in that way. But it is about persuading the environment minister that business interests need to be understood and taken on board in that portfolio."

"We have a higher manufacturing base than perhaps the rest of the UK. That has been challenging in the context of the high pound.

"It may be some of those difficulties will be eased if the pound changes. There have been certain sectors, of course, where we have been very successful - aerospace being one with Airbus in north Wales. Aerospace is a very important sector to us."

But Wales has grown new industries in the past few years, particularly in media.

"We have a significant broadcasting sector because of BBC Wales and S4C both being based in Cardiff," says Andrews.

"It is one of the largest broadcasting sectors outside London and the south east and is very important in terms of the promotion of south Wales - particularly Cardiff - on screen.

The BBC's flagship science fiction dramas Dr Who and Torchwood are both made in Cardiff.

"We have a number of production companies that are doing very well.

Boomerang recently listed on the stock market. Tinopolis is stock market-listed and owns the company that produces Question Time.

"It is an important sector producing programmes for inside and outside Wales."

Both financial services and professional services are growing in Wales though Andrews says it is not on the scale of Scotland.

"We have some strong companies - like Admiral Insurance which is a very good local success story - but it is not somewhere where we started with the traditional strengths that Scotland had. And ditto with the legal system. Ours is developing on the back of postdevolution growth but we don't have that centuries old tradition."

Andrews is heading the WAG's £140m programme to regenerate the heads of the valleys.

"What we are trying to do now is concentrate and focus investment and create industrial mass in that area and contribute to the development of the environment," he says.

"These were traditionally coal mining and steel making valleys.

There has been a huge amount of reclamation over the past 15 to 20 years. The issue for us is how to ensure that investment is happening in the community as well as in terms of the reclaimed land and how to encourage the private sector to become more active.

"The encouraging signs are that we have private sector investors working hard to develop sites."

One example is at the massive old steelworks site at Ebbw Vale where a major regeneration project is under way.

The scheme - led by the WAG and the council of Blaeneu Gwent - has already signed up developer Edward Ware to build a private housing development and there are also plans for a learning campus.

The assembly has also funded a number of transport projects to help the regeneration of the valleys including the Porth relief road.

It also invested £30m in reopening the rail link from Cardiff to Ebbw Vale which included the building of six new stations.

The valleys area has managed to attract a number of major companies to set up or expand operations including ConvaTec, part of the USheadquartered medical group Bristol-Myers Squibb.

The WAG is also very focused on trying to make sure local labour is employed by contractors and that local businesses are given a good chance of winning public sector contracts.

"What we are really trying to do is recycle the Welsh pound," says Andrews.

"If we are spending a lot of money we try to ensure we don't just spend that on contractors who then bring labour in from outside.

"We employ local labour and try and ensure that local businesses get contracts."

Andrews claims Wales has been ahead of the game in the EU in terms of getting funding.

"Where we can we are looking to leverage in additional European money through a number of projects we are about to launch.

"West Wales and the valleys was an objective one area and is now under the new programme of convergence areas."

Andrews says the decision to merge the WDA into the WAG was taken because there was a strong feeling that quangos themselves developed cultures and priorities of their own and sometimes those priorities might compete with those of the government.

"In my experience as an assembly member and subsequently as a minister, what it has allowed us to do is have the right levers in place to drive regeneration," he explains.

"In the past regeneration projects tended to be about site reclamation and property development. There wasn't really an holistic approach, an effective targeting of funds or a targeted exit strategy.

"I don't think there was an ability to think about the community and regeneration. So we have taken a different approach in Wales."

He says the important thing is that the WAG remains engaged with business and has direct access to ministers, which it does because Wales is a small country.

Like the Scottish Government, the WAG has also been reviewing business support. It is going down the road of flexible business solutions.

"We are already piloting the single investment fund for business support which brings together all the different support arrangements there are," he says.

"The idea is to simplify the approach to business when they are applying for funds. Clearly there are different funding regimes under which some money is given.

"The important thing is that there is one application form and that there are account managers in place to look after businesses at all stages of development. That is the kind of approach we want to take."

One of the biggest developments taking place in Wales over the next few years will be the new £11bn defence training academy in St Athan which is set to create some 4000 jobs.

The contract was won by the Metrix consortium whose members included EDS, Dalkia and QinetiQ.

Looking ahead to the next five years Andrews thinks there are two big opportunities for Wales.

"One is the arrival of the defence training academy," he says.

"The second is that we need to maximise the use of the funds we have available for skills, pushing diversification of the economy and growing R&D. Those are the kind of opportunities and challenges that we are faced with."

The Welsh assembly Government is responsible for:

Agriculture, fisheries, forestry & rural development

Ancient monuments & historic buildings

Culture

Economic development

Education & training

Environment

Fire and rescue services and promotion of fire safety

Food & Health services

Highways & transport

Housing

Local government

Public administration

Social welfare

Sport and recreation

Tourism

Town & county planning

Water & flood defence

Welsh language

Wales Factfile

Population: 2.9 million.

Capital: Cardiff (population - 320,000)

Unemployment: 5.1 per cent

Unemployment, UK average: 5.2 per cent.

GVA* per head of population: 77

GVA* UK: 100

*GVA= gross value added.

Governement: The Welsh Assembly Government has a total of 60 elected Assembly Members known as AMs. Elections are held every four years and voters have two votes, one for a constituency representative and one for a political party (or Independent) at regional level. In the 2007 elections Labour was left with 26 seats - five short of an absolute majority - and formed a coalition with the Welsh Nationalist party, Plaid Cywmru, which won 15 seats. The Welsh first minister is Labour's Rhodri Morgan and his deputy is Plaid's Ieuan Wyn Jones.